High transportation rates are not always the root cause of inflated transportation
costs. A large food processor was surprised when they had completed
benchmarking their operations and discovered that they were spending more
on freight than the average industry competitor. What seemingly contradicted
this finding was that their transportation rates were found to be especially low,
among the best in the industry. Management was shocked to see that this
was not translating to the bottom line. In addition, the shipping department
had implemented procedures to consolidate outbound customer orders wherever
possible, which should have also translated to lower freight costs.
As with any complicated process, closer examination by management often
uncovers some surprising revelations. This case was not much different.
Much of the savings the company thought they were achieving through the
combination of outbound orders were being passed along to a transportation
broker. The company was combining several loads a day manually, yet they
still were sending these full truckloads through a transportation broker. This
broker would charge them LTL rates for these shipments, even though most of
the consolidation was completed by the company. Almost immediately, new
policies and practices were instituted to insure that the savings generated
from the load consolidations were now realized by the company; but, this only
partially explained the high comparative costs.
In benchmarking the policies, practices and costs of their operation, management
began to realize that many competitors were performing much more sophisticated
load planning processes. Manually combining orders into full loads
was not efficient, especially with the high number of orders shipped per day.
Currently, the load planner was only spending an hour a day examining outbound
shipping paperwork for any obvious consolidations. To really lower
transportation costs and gain a significant competitive advantage, load planning
had to be completed at a more detailed level. This would require more
time and effort from the load planner, much more than current effort used to
combine a few obvious loads. However, to do this effectively, the proper support
tools were needed.
Before any support tools were acquired, the new load planning process had to
be designed and specified. From the requirements generated from the design,
a new PC-based load planning package was acquired to support the operation.
The package provided the load planner with the capability to view all open orders,
even those that were not expected to ship for several days. Loads could
be created days in advance, with the flexibility to adjust them up until the day
of shipment. This allowed for a much more extensive level of consolidation,
and helped to establish an even more cost-effective pool distribution network.